In the May 2013 edition of our Chronicle, we highlighted some of the features of Myanmar’s new Foreign Investment Law and its implementing regulations (the new FIL). Under the new FIL, a foreign investor may carry out business activities in Myanmar through either a wholly foreign-owned company (except in certain restricted areas), a joint venture enterprise with a Myanmar citizen, or pursuant to a contract. Although not all activities require local participation, in practice many new foreign investors choose to include local partners in their business ventures as such partners bring crucial market knowledge on how to navigate Myanmar’s economic and bureaucratic environment.
The use of a Myanmar-incorporated company as the joint venture vehicle (the Myanmar JVC) may seem an obvious choice for some; however, there are practical difficulties that relate to the registration of a Myanmar JVC’s articles of association with the relevant local authorities when setting up such a Myanmar JVC.
Broadly speaking, the foreign investment process consists of the following 3 steps:
- applying for and obtaining a permit from the Foreign Investment Commission;
- applying for and obtaining a Permit to Trade from the Directorate of Investment and Company Administration (DICA); and
- registering the company with the Companies Registration Office.
In respect of a Myanmar JVC, one of the documents to be submitted to the DICA for approval is a draft copy of its proposed articles of association.
DEVIATION FROM THE MYANMAR COMPANIES ACT
A Myanmar JVC is governed by the Myanmar Companies Act. Like our Singapore Companies Act, the Myanmar Companies Act also contains a "Table A", which is a template set of articles of association (Table A), the adoption of which is intended to be voluntary except for a small number of mandatory provisions. Although many of the provisions in Table A are theoretically non-binding, we understand that the DICA has in past instances rejected articles of association that deviate substantially from Table A, thus resulting in delays in the establishment of the Myanmar JVC.
To minimise the risk of running into a registration roadblock at the DICA, joint venture parties in a proposed Myanmar JVC may wish to consider the following alternatives:
- Including in the articles of association only the joint venture terms which are necessary from a Myanmar law perspective, and avoiding provisions which customarily raise red flags with the local regulators; or
- Utilising an offshore company (such as a Singapore-incorporated holding company) as the joint venture vehicle, which will in turn own the Myanmar operating company, and having the joint venture terms incorporated into the articles of association of such offshore holding company.